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Sat, Jan 28, 2006 - Page 6 News List

Microsoft posts profit increase

HEALTHY EARNINGS Despite the massive costs of introducing the Xbox 360 unit, the tech giant posted 5 percent higher profits in the fourth quarter on robust sales

NY TIMES NEWS SERVICE , SAN FRANCISCO

Microsoft Corp said on Thursday that its quarterly profit rose 5 percent, matching Wall Street's forecasts, as the high cost of introducing the Xbox 360 game console was offset by strong sales of servers and software tools.

The company said net income was US$3.65 billion, or US$0.34 a share, for the three months ended Dec. 31, a period that included US$0.01 a share in tax benefits. That compares with net income of US$3.46 billion, or US$0.32 a share, a year earlier.

Despite a shortage of units in the holiday season, Microsoft said it was able to ship 1.5 million Xbox units between the product's release Nov. 22 and the end of last month. That figure, while below Microsoft's early projections, was better than many Wall Street analysts had expected.

"The quarter was pretty much in line, but despite all the hoopla the Xbox sales turned out to be better than we thought," said Rick Sherlund of Goldman Sachs.

He said investors would probably breathe a "collective sigh of relief" at the generally positive outlook. Revenue in the period, the second quarter of Microsoft's fiscal year, rose 9 percent, to US$11.84 billion from US$10.82 billion, and was slightly below the company's October forecast of US$11.9 billion to US$12 billion.

Analysts had forecast a profit of US$0.33 a share on revenue of US$11.96 billion, according to a survey by Thomson Financial.

Christopher Liddell, Microsoft's chief financial officer, said the shortage of Xbox 360s was caused primarily by component shortages and that the company planned to add a third manufacturer.

The company lowered its estimate of Xbox 360 sales in the first 90 days but maintained its forecast of shipping 4.5 million to 5.5 million units before the end of the company's fiscal year in June.

Yet while the immediate impact of the Xbox shortage may be minimal, the problem could spell trouble in the long run as Microsoft goes head to head with Sony, which is scheduled to ship its new PlayStation 3 sometime this year.

Lidell said strong demand for personal computers during the quarter helped drive sales of the Windows operating system. He reiterated that the company was on track to ship Vista, the first major revision to Windows in several years, in the middle of this year.

The company, which expects PC sales to grow 14 to 15 percent next year, raised its revenue and profit forecasts slightly for the fiscal year. The company now expects to earn US$1.28 to US$1.31 a share, up from its previous forecast of US$1.26 to US$1.30 a share. Microsoft raised its revenue forecast to US$44 billion to US$44.5 billion, up from US$43.7 billion to US$44.5 billion. For the third quarter, the company expects to earn US$0.32 to US$0.33 a share on revenue of US$10.9 billion to US$11.2 billion.

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